Now what is factoring?

When the seller is selling the goods on credit in that case they have to wait till they receive the
payment Here the need of factoring arises

Since there is a need of cash for the business the seller is selling the B/R to a 3rd person that person
is known as factor.

Features

1. For every business cash is a very important resource, For every day today activities cash is
required we can say that as working capital. So through the Fund based service the co.
eliminates the problem of Lack of working capital. By selling their own bills they are able to
tackle this problem

2. When the bill is sold by the seller to the factor at that time they are not getting a 100% of
their bill amount , 80% if the bill amount is paid by the factor to the seller. 20% paid when
the factor receives the amount from debtor.

3. Sometimes Seller feels this service as very costly because at one time they are receiving a
full amount so For e.g If the bill amounting to rs 1cr if this bill is sold by the seller to the
factor at this case the factor will only pay 80 Lakhs only.

So remaining 20 lakhs they have arrange for the timebeing and this will be burden on seller.

4. Less Dependence- As all us knows that Every type of business the working capital is a most
important thing. So whenever the company is in need of that they Goes for the short term
loans at that time the company have to depend on the bank for the loan
They have to spent the time with the bank and even they have to pay the interest for the
short term loan.
So factoring is a service which gives a company a another option where they only have to
sell their bills remaing all the procedure will be taken care by the factor

5. Professionalism – The person who will be performing a role of factor will be a Expert , Who
will be a skilled , so the factor will be a person who will be able to handle any situation.

This reserve is paid to the seller

When credit sales is taken place at that time factor is coming into picture.

Factoring is also called as invoice discounting

Factoring is a fund based financial service which provides the finance to the seller

Most popular in advanced countries

The seller, the debtor and the factor.